Does the ‘Red Flags Rule’ Apply to My Dealership?

In January, the federal government officially started enforcing major parts of the 2003 Fair and Accurate Credit Transactions Act to combat consumer credit fraud. These regulations, known collectively as the “Red Flags Rule,” require action from nearly every business that acts as a creditor or holds “covered accounts.”

What’s a covered account? According to the Rules, it’s “an account that a financial institution or creditor offers or maintains, primarily for personal, family, or household purposes that involves or is designed to permit multiple payments or transactions.” Essentially, any dealership that extends in-house auto loans (including Buy Here, Pay Here) or leases has covered accounts.

If the Red Flags Rule applies to your business, you need to draft a viable written plan to prevent identity theft or risk serious penalties. You can seek advise from an attorney or you can quickly generate it yourself with the help of our Autocompli™ Red Flag Compliance Interface.

Though many dealers are reluctant to embrace more regulations, adopting an identity theft prevention program protects your dealership at least as much as it does the consumer whose identity is stolen. After all, consumers are usually able to recover their money. An auto dealer who sells a vehicle to an identity thief may end up taking a huge loss if the vehicle is sold for parts or moved out of the country and insurance companies are less and less likely to reimburse you in cases of identity theft.

Our Red Flag Interface assesses your dealership’s readiness by asking you a series of “Yes/No” questions, then gives you a precise checklist of steps you must take to become Red Flag compliant. It can also draft your written Red Flag plan complete with employee training procedures, and provides extra security by allowing you to check each customer’s identity against the Office of Foreign Assets Control (OFAC) watch list. For dealers who want absolute vigilance against fraud, this feature is a must-add.